What is meant by subrogation in insurance practice?

Subrogation in insurance practice refers to the right of an insurance company to seek reimbursement from a responsible third party after it has compensated a policyholder for a loss. When an insurer pays a claim to the insured, it may pursue recovery from the party that caused the loss. This process helps the insurance company mitigate its losses and ensures that damages are ultimately paid by the party at fault, rather than solely by the insurance premiums collected from the insured.

Subrogation serves several important functions in the insurance industry. It allows insurance companies to recover the costs they incurred for claims, which can keep premiums lower for policyholders. Additionally, it reinforces accountability, making sure that the responsible parties are held liable for the harm they cause.

The other choices do not accurately represent the concept of subrogation. Selling a policy for cash value relates to a different aspect of insurance, while adjusting claims based on state regulations pertains to claim processing rather than recovering costs from third parties. Redistribution of funds among policyholders is more aligned with concepts like dividends or profit-sharing rather than the legal right of subrogation.